How to Approach Firing a Property Management Company

The property management company is one of the most – if not the most – important member on your core apartment syndication team. They are the boots-on-the-ground who oversee property operations on a daily basis and execute the business plan. Therefore, the success or failure of a deal is highly dependent on the quality of the company managing the property.

Well, they may need to be let go and another property management company will need to take their place.

In this blog post, I will outline the three reasons why you would need to part ways with your property management company, the five things you need to address in order to ensure a smooth transition and how to approach the conversation when letting the old manager go.

When Should You Fire Your Property Management Company?

There are three main things your property management company could do that should start the firing process:

Criminality or fraud

If you discover that your property management company has committed fraud or a criminal act, you should begin the firing process immediately.

Lack of execution

Lack of execution is another reason why you would fire your property management company. However, before beginning the firing process, confirm that the lack of execution is due to the property management company and not some other factor. For example, a failure to meet rental premiums on renovated units, a lower than expect occupancy rate or a high loss-to-lease could be due to the current market conditions and not the property management company. Or poor unit renovations or deferred maintenance could be due to a poor vendor and not the property management company.

You don’t want to go through the trouble of firing your property management company if the problem will continue once a new management company is in place, so make sure you do your homework.

Lack of communication

While this reason is subjective, you will know if your property management company is an ineffective communicator. Are they ill prepared for, don’t show up to, or have to constantly reschedule the weekly meetings? Do they take days to reply to your emails? Is it a struggle to get them on the phone? Do they communicate with you immediately when something goes wrong at the property? These are examples of a property management company that lacks communications and should be fired.

Unless the property management company has committed fraud or a criminal act, I recommend waiting at least one quarter before beginning the firing process. If after a quarter they still aren’t executing the business plan and/or lack communication, the first step of the firing process is to find a replacement property management company.

5 Things to Address to Ensure a Smooth Transition

Once you’ve made the decision to fire your property management company and found a replacement, there are 5 things you need to address in order to ensure the smoothest transition possible.

Staffing

First, you need to decide if you are going to fire all of the existing onsite staff or if you will allow some of them to stay under the new management company. To determine who stays and who goes, have the new property management company interview and vet the current staff. After the interviews and vetting, they can decide who to keep and who to let go.

Keeping some of the existing staff can be very helpful with the transition, because they have previous experience of and inside knowledge on operating the property. But if the current staff isn’t performing, the property management company may need to bring on an entirely new staff.

Financials

Your new property management company should proactively request all of the financial documents they need in order to take over the operations. This include the historical profit and loss statements, the current leases and rent roll and the chart of accounts (list of income and expense line items and the bad debt/delinquency).

Renovations

The new property management company will also need a list of the units that have and haven’t been renovated. Additionally, they need to know the exact renovations that were done for each unit. This information needs to be as detailed as possible. The new property management company needs to know what units are completely renovated (and what the upgrades were), what units have been partially renovated (and what upgrades remain) and what units have not been renovated. That way, once they take over management, the can start right where the old management company left off.

Vendors

The new property management company will need a list of all the vendors who work on the property, like the maintenance person, plumber, painter, appliance repair person, carpet person, drywall person, etc. Similar to the staff, continuing to work with the current vendors will help with the transition process.

Service Contracts

The new property management company will also need a list of all the contractors who work on the property, like the pest control company, pool person, landscaper, security, etc. And, they will need the actual contracts as well.

Other Things to Think About

Firing a property management company isn’t easy and unforeseen difficulties will arise. So, in order to minimize these difficulties, I recommend the following.

First, use soft communication skills when explaining the reason why you are firing them. Don’t call them on the phone, say “you’re fired” and hang up. Instead, I recommend placing the blame for the firing on your passive investors. For example, I would say, “I am getting a lot of pressure from my investors to find a new company to manage the property so we are going to have to part ways.”

Next, read the contract between you and your property management company. Make sure you understand how much time in advance you need to notify the property management company before firing them.

Finally, have a representative from your new property management company address the 5 things I outlined above with the old property management company. You shouldn’t be doing them yourself. Also, have your new representative talk with a neutral party from the old property management company. They shouldn’t be talking to the president or the person who oversaw the property. A regional manager who isn’t emotionally involved with the property is the ideal go-between.

What about you? Comment below: Tell me about a time you had to part ways with a property management company and how you approached it.